Financial Accounting: Stakeholders, Transactions, and Statements

This financial accounting report provides a comprehensive overview of financial accounting principles and practices. It begins with an introduction to financial accounting, its purpose, and the identification of internal and external stakeholders, along with their respective interests in financial information. The report then delves into specific client scenarios, including journal entries, profit and loss accounts, balance sheets, and explanations of key accounting concepts such as going concern, accrual, consistency, and prudence. The purpose of depreciation in accounting statements is explained, along with the differences in financial statements prepared by sole traders and limited companies. Furthermore, the report covers bank reconciliation statements, imprest systems, and control accounts. It concludes with an analysis of suspense accounts and trial balances, and the importance of journal entries and corrections. The report uses examples from the small business accounting firm, Brookscity, to illustrate the practical application of these concepts. Overall, the report provides a detailed analysis of financial accounting principles and their application in various business contexts.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1.) Financial accounting and its purpose................................................................................1
2.) Who are internal and external stakeholders and why they are interested in the financial
information of the organization..............................................................................................3
CLIENT 1........................................................................................................................................5
Journal entry in bookds of account of Alexandra study.........................................................5
..........................................................................................................................................................7
..........................................................................................................................................................9
CLIENT 2......................................................................................................................................13
A. P&L account....................................................................................................................13
b. Balance sheet....................................................................................................................14
c.) Explanation of accounting concepts:...............................................................................14
d.) Purpose of depreciation in formulating accounting statements......................................15
e.) Financial statement prepared by sole traders and limited company................................16
CLIENT 3......................................................................................................................................16
A.) Purpose of preparing Bank Reconciliation Statement....................................................16
b.) Reasons for difference in BRS........................................................................................17
c.) Explanation of term “imprest” in petty cash statements.................................................17
D. cash and bank reconciliation statement...........................................................................17
CLIENT 4......................................................................................................................................18
A. balance accounts..............................................................................................................18
B.) Explanation of control account.......................................................................................19
CLIENT 5......................................................................................................................................19
a.) Explanation of suspense account and its features...........................................................19
B. Trial balance ...................................................................................................................20
c. Journal entries and corrections.........................................................................................20
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Financial accounting keeps a track of company's financial position and performance by
maintaining various financial statements. These financial transactions are systematically
recorded, classified, summarized and monitored to ascertain financial health of the business. This
study highlights the purpose of financial accounting and types of stakeholders and evaluate why
they are interested in financial information of the organization.
Further for different client business transaction for using double entry and trial balance
has been extracted. Brookscity is the small business accounting firm established in London focus
on high value and ideal clients like real estate agents, developers, freelancer, consultants,
contractors, entrepreneurs, retailers, etc. Preparation of various final accounts for sole- traders,
partnership and limited company has been prepared. Furthermore, it also performs bank
reconciliation statements to ensure bank records are correct and accurate. It also maintains
suspense account for carious financial transactions.
PART A
1.) Financial accounting and its purpose.
Financial accounting is an important part of accounting which keeps a track of company's
financial transaction. These transactions are recorded, classified, summarized and monitored in a
systematic manner in financial statements like balance sheet, income statement and cash flow
statements for a particular period of time. These financial statements records company's financial
performance for specific period. Financial accounting is done to provide information to parties
outside the organization.
Financial accounting is required to be prepared in compliance with generally accepted
accounting principles (GAAP). It is the standard guidelines which are required to be used while
preparing financial accounts for a particular period. Financial accounting statements also work in
compliance with International Financial Reporting Standards (IFRS) which are issued by
International Accounting Standard Board (IASB). Company's which are established
internationally has to work in compliance with IFRS. Financial statements should be relevant,
reliable, understandable, comparable and should not omit any material information which could
influences the decision making (Andriof and Waddock, 2017).
Financial accounting helps in providing information to management, lenders, tax
authorities, government, investors, creditors, suppliers and stakeholders which helps in decision

making of the company. These reports provide clear picture of the company's financial position
and performance which influences decision making of the external stakeholders.
Purpose of financial accounting
1) It aims at providing financial information to creditors, investors, lenders, suppliers,
government, stakeholders in taking decision effectively to increase operational
productivity and performance.
2) Financial accounting provides reliable and material information which helps determining
financial position of the company for a particular period (El Guindy and Basuony, 2018).
3) Financial accounting is used for comparing current performance with the past historical
data and also give relevant information for increasing operational efficiency and
productivity..
4) The main purpose of financial accounting statements is to help investors and creditors to
evaluate company's performance.
5) Financial accounting is done to provide important information to business owners and
help control finances of the company effectively.
6) It is used for easy analysis and interpretation of financial statements which helps
evaluating various aspects of business in more detailed manner.
7) Financial accounting aims at formulating and implementing strategy for future course of
action and also helps in monitoring the success of the strategy.
8) Financial accounting helps in analyzing solvency position of the organization to meet its
liabilities.
9) Financial accounting helps in analyzing whether financial goals and objective of the
particular period is met or not and in case of any deviation necessary action is taken
accordingly (Hotho and Saka-Helmhout, 2017).
2.) Who are internal and external stakeholders and why they are interested in the financial
information of the organization.
Stakeholders can be an organization, individual or group who are largely influenced by
the performance and operation of the organization. Stakeholders can be categorized into two
types, i.e., internal stakeholders and external stakeholders.

Internal stakeholders:
Internal stakeholders consist of individual or groups within the organization who are
directly involved in the operations of business. Internal stakeholders are known as primary
stakeholders who invest their interest in the performance of the organization and it consists of
employees, board of directors, owners, managers and investors.
1) Employees: they are primary internal stakeholders who work in the organization and
helps in defining roles, tactics and strategy for attaining organizational goals and
objective of the company (Overview of Key Elements of the Business, 2019). Employees
of the organization get remuneration and incentives for the work performed by them.
They are also entitled to bonus if company's make extra profit due to which they are
interested in financial information of the company to ascertain chances of getting raise or
bonus.
2) Managers: They have key role in establishing the strategy for the organization and make
strategic decision which increases operational efficiency and productivity of business.
They work for the development of the organization and actively participate in the
management of the company so that goals can be attained effectively.
Illustration 1: Business Stakeholders: Internal and External
Source: Overview of Key Elements of the Business, 2019

External stakeholders:
External stakeholders consist of organization, individuals and groups outside of the
organization and are affected by the performance of the organization. These stakeholders do not
actively participate in the company but deals with it externally. They consist of customers,
creditors, suppliers, government, lenders, investors, shareholders, competitors, society, etc.
External stakeholders are also known as secondary stakeholders who do not have large influence
on the working of the company.
1) Customers: They are considered the heart of business as they indirectly influence the
operations of the company. Consumers are the one who are going to consume the
product. Larger the customer base higher will be the profit of the company.
2) Suppliers: They are the key element of stakeholders who provide organization with
inputs like raw materials, equipment, machinery. They indirectly influence the working
of the organization by timely shipments and making goods available for smooth
functioning of operations (Jeppson, Ruddy and Salerno, 2016).
3) Government: Organization has to work in compliance with the rules and regulation
guided by the government. Company has to pay taxes and duties levied by the
government on regular basis.
4) Creditors: they are individual, corporate and financial institution who provide funds to
the organization to enhance their operational productivity effectively and efficiently.
Need of financial information for stakeholders:
 Employees use financial statements to analyze the company's profitability which helps
them evaluate upcoming remuneration and job security.
 Managers use financial statements to take strategic decisions effectively by analyzing
company's profitability and liquidity which will help increase operational efficiency and
productivity of the company.
 Suppliers use financial information to analyse operational efficiency of the organization
and decide the extends to which goods should be given on credit.
 Government use financial information to analyse whether tax and duties are paid on time
or not.

 Creditors evaluate financial information of the company to determine credit risk of the
company and also ensure that company will repay the amount timely and do not make
default in payment of money.
CLIENT 1
Journal entry in books of account of Alexandra study
Journal entries in the books of Alexandra for January are as follows
Date particulars Debit Credit
1st jan 2019 Storage expense A/c Dr 450
To bank A/c
2nd jan 2019 Purchase A/c Dr 6080
To S. hood A/c 1450
To D main A/c 2060
To W Tone A/c 960
To R foot A/c 1610
3rd jan 2019 J Wilson A/c Dr 1200
T . Cole A/c dr 1650
F. Syme A/c Dr 2100
J . Allen A/c Dr 1020
P. white A/c Dr F. Lane A/c Dr 2520
F. lane A/c Dr 980
To sales A/c 9470
4th jan 2019 Motor Expenses A/c Dr 470

To cash A/c 470
7th jan 2019 Drawing A/c Dr 1500
To cash A/c 1500
9th jan 2019 T. cole A/c Dr 680
J. Fox A/c Dr 1310
To sales A/c 1990
11th jan 2019 Sales return A/c Dr 680
To J. wilson 270
F.syme 410
16th jan 2019 Cash A/c Dr 7020
To P. Mullen A/c 1400
To F. Lane A/c 3100
To J. Wilson 850
To F. Shyme 1670
19th jan 2019 R. foot A/c Dr 50
To Purchase return A/c 50
22st 2019 Purchase A/c Dr 3740
To L.Mole A/C 1830

To W. Wright 1910
24th jan 2019 S. Hood A/c DR 3600
J. Brown A/c Dr 4600
R. Foot A/c Dr 1400
To Bank A/c 9600
27th jan 2019 Salary A/c Dr 4800
To bank A/c 4800
30th jan 2019 Business rates A/c Dr 1320
To bank A/c 1320
Purchase ledger

cash book
Nominal Ledgers

Real Ledger
..

Trial balance for the month ended January
Particular Debit Credit
S. Hood 10000
J. Brown 12000
R. foot 160
W. Tone 960
L. Mole 1830
W. Wright 1910
J whilson 80
F. syme 20
T.cole 2330
J. Allen 1020
P white 2520
F.lane 2020
J.fox 1310
P.mullen 3000
Sales 11460
Purchase 9820
purchase return 50
sales return 680
storage cost 450
Motor expense 470
salary 4800
drawings 1500
business rates 1320
capital 382900
premise 240000
van 51250
Fixtures 8100
inventory 23900
Cash in hand 21650
Cash at bank 52230
suspense account 7200
428470 428470

CLIENT 2
A. P&L account

b. Balance sheet
c.) Explanation of accounting concepts:
 Going Concern: This accounting concept states that business will be continued for the
longer period of time in future. This concept is also referred to as continuing concern
concept. Any business working in going concern should work in compliance with the

generally accepted accounting principles (GAAP) and international financial reporting
standards (IFRS).
 Accrual concept: This accounting concept states that income must be recorded at the
time income is earned and not when cash is received whereas expenses are recorded at
the time expenses are incurred and not when they are paid (Katta, 2018).
 Consistency: This accounting concept states that company should use same accounting
principles consistently from one accounting period to another. This helps management
and accountants to analyse the performance of the company by comparing the financial
statements with different years.
 Prudence concept: This accounting concept states that company should not overestimate
its assets, profits and income whereas it should also not underestimate its liabilities,
losses and expenses.
d.) Purpose of depreciation in formulating accounting statements.
Depreciation is a concept used in accounting to realize the actual cost of the tangible
asset over its useful time. It is a non cash transaction which allows company to depreciate the
value of asset over a time. Depreciation is used in formulating accounting statements by charging
expense in relation to the wear and tear of the asset. It reduces the value of asset year by year in
balance sheet and same amount is charged to the debit of p&l account and it write-off the value
of asset at the end of the valuable life of asset and shows accurate financial position of the
company.
Two widely used depreciation methods are:
Written down value method: It is also referred to as reducing balance method where a fixed
rate of depreciation is charged on the book value of the asset every year over the useful life of
the asset to reflect the present worth of the tangible asset. Written down value method is used to
write off the value of intangible asset like patent, trademark, copyright, etc..
Straight line method: Fixed value of depreciation is charged on the original value of the asset
every year over the useful life span of tangible asset(Kelly, 2015). SLM method is use to write
off the value of tangible assets like machinery, plants, equipments, etc.
Which one is better: Written down value method is more beneficial then SLM because it is
more realistic and accurate. This method is appropriate for the asset whose repair cost are more
and SLM is appropriate for those tangible assets who has negligible repair cost.

e.) Financial statement prepared by sole traders and limited company.
BASIS SOLE TRADERS LIMITED COMPANY
1. Meaning A sole trader is the only owner
of the company.
A limited company has
separate legal entity different
from the owners of the
company.
2.) Financial statements. Sole traders has to make only
income statements because it
is concerned with profitability
of business.
Limited company has to make
all financial statements like
balance sheet, income
statements, cash flow
statements and statement of
change in Owner's equity.
3.) Legal compliance Sole traders are not registered
so they do not have to work in
compliance with any law and
regulations.
Limited company are
registered under Companies
Act, 2006 so they have prepare
financial statements in
compliance with GAAP and
IFRS.
4.) Presentation of annual
reports
Sole trader company do not
have to publish annual reports
in board meetings and to
stakeholders.
Limited company has to
publish and present reports to
its board of directors and
stakeholders of company.
CLIENT 3
A.) Purpose of preparing Bank Reconciliation Statement.
Bank Reconciliation Statement (BRS) is prepared on a periodical basis to compare the
Burcu Ltd. statement with bank account. This is used to eliminate fraud and errors and find out
the cause of deviation in the books and correct it in the timely manner.

The main purpose of preparing BRS is to eliminate risk, fraud. omission and error in any
financial transaction. Reconciling both the accounts helps in preventing administrative problems.
Preparation of BRS helps in improvising internal control of Burcu Ltd cash. It also ensures that
entries in both books are accurate and complete and do not miss out on important information
(Stadler and Nobes, 2018).
b.) Reasons for difference in BRS
 Cheque outstanding or dishonour of cheque.
 Deposit in process.
 Error in recording wrong amount in the books.
 Omission of financial transactions.
 Amount debited in one book and credited in another book.
 Duplication of entries.
 Amount of creditor posted in the account of debtor.
c.) Explanation of term “imprest” in petty cash statements.
Imprest is the cash account where fixed balance is maintained for a specific period of
time which is used to carry out day to day small routine expenses of the company. These cash
funds are handled by custodians to pay employees for small expenses documented with receipt.
D. cash and bank reconciliation statement

CLIENT 4
A. balance accounts of books of Hilly
Sales ledger
Purchase ledger

B.) Explanation of control account.
Control account is a type of account maintained in general ledger which is prepared to
summarize the more detailed individual accounts. This helps in simplifying and organize the
ledger in more systematic manner. This account is very useful in formulation of strategic
business policies. This account is helpful in maintaining accuracy of rerecords by reconciling
cost accounts with financial accounts (Wall and Connolly, 2016).
CLIENT 5
a.) Explanation of suspense account and its features.
Suspense account is a type of account in general ledger to record temporary amounts
when in doubt or discrepancy. Those transactions are recorded in suspense account when the
proper account cannot be determined at the time transaction was recorded. This account act as
holding account until the actual cause of error is identified.
The main feature of suspense account is that it records transaction for temporary period
and also identify the cause of error and mistake (Zambon, 2016).

B. Trial balance
c. Journal entries and corrections

CONCLUSION
From the above study it has been summarized that financial accounting is of key
significance for the company which help determine financial position of the company. It also
helps management in strategic decision making which help attain organizational goal. It also
concludes that performance of the company influences stakeholders. It states that company has to
work in accordance with various accounting concepts for increased operational efficiency.
Further it states that depreciation is of key significance in formulating financial statements which
shows true value of tangible asset over its period of life. Company has to maintain BRS to
maintain company's bank account with cash account. It also states importance and features of
control account and suspense account.